In order to have positive float benefit, the short-term interest rate applied to the total number of days from prepayment to remittance must be high enough to offset the interest expense of the loan (pass-through rate) from the prepayment date to the end of the month.

The trade-off for pooling Freddie Mac ARC PCs is that you forgo the potential positive float in a Fannie Mae MBS when the market conditions are conducive to higher amounts of float.

Also, there is less likelihood that interest rates will remain at those higher levels or increase, creating positive float days.

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